Process Strategy

7
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 7-1
 Outline
► Global Company Profile:
Harley-Davidson
► Four Process Strategies
► Selection of Equipment
► Process Analysis and Design
► Special Consideration for Service
Process Design

© 2014 Pearson Education, Inc. 7-2

 Outline - Continued

► Production Technology
► Technology in Services
► Process Redesign

© 2014 Pearson Education, Inc. 7-3

 Learning Objectives
When you complete this chapter you
should be able to:
1. Describe four process strategies
2. Compute crossover points for different
processes
3. Use the tools of process analysis
4. Describe customer interaction in service
processes
5. Identify recent advances in production
technology

© 2014 Pearson Education, Inc. 7-4

 Harley-Davidson
Repetitive manufacturing works
► The only major U.S. motorcycle company
► Emphasizes quality and lean
manufacturing
► Materials as Needed system
► Many variations possible
► Tightly scheduled repetitive production
line

© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 7-5
 Process Flow Diagram
Frame tube Frame-building Frame Hot-paint
bending work cells machining frame painting
THE ASSEMBLY LINE
TESTING Engines and
Incoming parts transmissions
28 tests
Arrive on a JIT
schedule from a
Air cleaners Oil tank work cell 10-station work
cell in
Milwaukee
Fluids and mufflers Shocks and forks

Fuel tank work cell Handlebars

Wheel work cell Fender work cell

Roller testing
Crating

© 2014 Pearson Education, Inc. 7-6

 Process Strategy

The objective is to create a process

to produce products that meets
customer requirements within cost
and other managerial constraints

© 2014 Pearson Education, Inc. 7-7

 Process Strategies
► How to produce a product or provide a
service that
► Meets or exceeds customer requirements
► Meets cost and managerial goals
► Has long term effects on
► Efficiency and production flexibility
► Costs and quality

© 2014 Pearson Education, Inc. 7-8

 Process, Volume, and Variety
Figure 7.1 Volume
Low Repetitive High
Volume Process Volume
High Variety
one or few units Process Focus Mass Customization
per run, projects, job shops (difficult to achieve, but
(allows (machine, print, huge rewards)
customization) hospitals, restaurants) Dell Computer
Arnold Palmer Hospital

Changes in
Modules
modest runs, Repetitive
standardized (autos, motorcycles,
modules home appliances)
Harley-Davidson
Changes in
Attributes (such
as grade, quality, Poor Strategy Product Focus
size, thickness, (Both fixed and (commercial baked goods,
etc.) variable costs steel, glass, beer)
long runs only are high) Frito-Lay
© 2014 Pearson Education, Inc. 7-9
 Process Strategies
Four basic strategies
1. Process focus
2. Repetitive focus
3. Product focus
4. Mass customization
Within these basic strategies there are
many ways they may be implemented
© 2014 Pearson Education, Inc. 7 - 10
 Process Focus
► Facilities are organized around specific
activities or processes
► General purpose equipment and skilled
personnel
► High degree of product flexibility
► Typically high costs and low equipment
utilization
► Product flows may vary considerably
making planning and scheduling a
challenge
© 2014 Pearson Education, Inc. 7 - 11
Process Focus Many inputs
(surgeries, sick patients,
baby deliveries, emergencies)

(low-volume, high-variety,
Many departments and
intermittent processes) many routings
Arnold Palmer Hospital

Figure 7.2(a) Many different outputs

(uniquely treated patients)
© 2014 Pearson Education, Inc. 7 - 12
 Repetitive Focus
► Facilities often organized as assembly
lines
► Characterized by modules with parts and
assemblies made previously
► Modules may be combined for many
output options
► Less flexibility than process-focused
facilities but more efficient

© 2014 Pearson Education, Inc. 7 - 13

 Raw materials and
Repetitive module inputs
(multiple engine models,

Focus wheel modules)

Few
modules

(modular)
Harley Davidson

Figure 7.2(b) Modules combined for many

Output options
© 2014 Pearson Education, Inc.
(many combinations of motorcycles)
7 - 14
 Product Focus
► Facilities are organized by product
► High volume but low variety of
products
► Long, continuous production runs
enable efficient processes
► Typically high fixed cost but low
variable cost
► Generally less skilled labor
© 2014 Pearson Education, Inc. 7 - 15
Product Focus Few Inputs
(corn, potatoes, water,
seasoning)

(high-volume, low-variety,
continuous process)
Frito-Lay

Output variations in size, shape,

Figure 7.2(c) and packaging
(3-oz, 5-oz, 24-oz package
labeled for each material)
© 2014 Pearson Education, Inc. 7 - 16
 Mass Customization
► The rapid, low-cost production of
goods and service to satisfy
increasingly unique customer desires
► Combines the
flexibility of a
process focus
with the efficiency
of a product focus

© 2014 Pearson Education, Inc. 7 - 17

 Mass Customization
TABLE 7.1 Mass Customization Provides More Choices Than Ever
NUMBER OF CHOICES
ITEM 1970s 21ST CENTURY
Vehicle styles 18 1,212
Bicycle types 8 211,000
Software titles 0 400,000
Web sites 0 255,000,000
Movie releases per year 267 744
New book titles 40,530 300,000
Houston TV channels 5 185
Breakfast cereals 160 340
Items (SKUs) in supermarkets 14,000 150,000
LCD TVs 0 102

© 2014 Pearson Education, Inc. 7 - 18

 Mass Many parts and
component inputs
(chips, hard drives, software,
Customization cases)

Many modules
(high-volume, high-variety)
Dell Computer

Figure 7.2(d)
Many output versions
(custom PCs and notebooks)
© 2014 Pearson Education, Inc. 7 - 19
 Mass Customization
► Imaginative product design
► Flexible process design
► Tightly controlled inventory
management
► Tight schedules
► Responsive supply-chain partners

© 2014 Pearson Education, Inc. 7 - 20

 Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PRODUCT MASS
PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION
(LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME,
HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY)

1. Small quantity 1. Long runs, 1. Large 1. Large quantity

and large usually a quantity and and large
variety of standardized small variety variety of
products product from of products products
modules

2. Broadly 2. Moderately 2. Less broadly 2. Flexible

skilled trained skilled operators
operators employees operators

© 2014 Pearson Education, Inc. 7 - 21

 Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PRODUCT MASS
PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION
(LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME,
HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY)

3. Instructions 3. Few changes 3. Standardized 3. Custom orders

for each job in the job requiring many
instructions instructions job instructions

4. High 4. Low inventory 4. Low 4. Low inventory

inventory inventory relative to the
value of the
product

© 2014 Pearson Education, Inc. 7 - 22

 Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PRODUCT MASS
PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION
(LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME,
HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY)

5. Finished 5. Finished 5. Finished 5. Finished goods

goods are goods are goods are are build-to-
made to order made to made to a order (BTO)
and not stored frequent forecast and
forecasts stored

6. Scheduling is 6. Scheduling is 6. Scheduling is 6. Sophisticated

complex routine routine scheduling
accommodates
custom orders

© 2014 Pearson Education, Inc. 7 - 23

 Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PRODUCT MASS
PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION
(LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME,
HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY)

7. Fixed costs 7. Fixed costs 7. Fixed costs 7. Fixed costs

are low and are dependent are high and tend to be high
variable costs on flexibility of variable costs and variable
high the facility low costs low

© 2014 Pearson Education, Inc. 7 - 24

 Crossover Chart Example
▶ Evaluate three different accounting software
products
▶ Calculate crossover points between software A
and B and between software B and C

DOLLARS REQUIRED PER

TOTAL FIXED COST ACCOUNTING REPORT
Software A $200,000 $60
Software B $300,000 $25
Software C $400,000 $10

© 2014 Pearson Education, Inc. 7 - 25

 Crossover Chart Example
( ) ( )
200,000 + 60 V1 =300,000 + 25 V1
35V1 =100,000
V1 =2,857
► Software A is most economical from 0 to 2,857 reports

( ) ( )
300,000 + 25 V2 =400,000 + 10 V2
15V2 =100,000
V2 =6,666
► Software B is most economical from 2,857 to
6,666 reports
© 2014 Pearson Education, Inc. 7 - 26
 Crossover Charts
Variable
costs
Variable Variable
$ costs $ costs $
Fixed costs Fixed costs
Fixed costs
Low volume, high variety Repetitive High volume, low variety
Process A Process B Process C

ts
co
s s ts
co
sA

s sB
$ ce
es

pro ts
cos
oc

tal ss C
pr

To p r oc e
l

l
ta

Tota
To

400,000
300,000
200,000
Fixed cost Fixed cost Fixed cost
Process A Process B Process C
Figure 7.3
(2,857) V1 V2 (6,666) Volume
© 2014 Pearson Education, Inc. 7 - 27
 Focused Processes
► Focus brings efficiency
► Focus on depth of product line
rather than breadth
► Focus can be
► Customers
► Products
► Service
► Technology

© 2014 Pearson Education, Inc. 7 - 28

 Selection of Equipment
▶ Decisions can be complex as alternate
methods may be available
▶ Important factors may be
► Cost ► Quality
► Cash flow ► Capacity
► Market stability ► Flexibility

© 2014 Pearson Education, Inc. 7 - 29

 Equipment and Technology

► Possible competitive advantage

► Flexibility may be a competitive
advantage
► May be difficult and expensive and
may require starting over
► Important to get it right

© 2014 Pearson Education, Inc. 7 - 30

 Process Analysis and Design
► Is the process designed to achieve a
competitive advantage?
► Does the process eliminate steps
that do not add value?
► Does the process maximize
customer value?
► Will the process win orders?

© 2014 Pearson Education, Inc. 7 - 31

 Process Analysis and Design

► Flowcharts
► Shows the movement of materials
► Harley-Davidson flowchart
► Time-Function Mapping
► Shows flows and time frame

© 2014 Pearson Education, Inc. 7 - 32

 “Baseline” Time-Function Map
Order Receive
Customer product product

Process
Sales order
Order

Production Wait
control

Product
Order

Plant A Print

Product
WIP

Warehouse Wait Wait Wait

Product
WIP
WIP
Extrude
WIP

Plant B

Transport Move Move

12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day

Figure 7.4(a)
52 days
© 2014 Pearson Education, Inc. 7 - 33
 “Target” Time-Function Map
Order Receive
Customer product product

Process
Sales order

Product
Order

Production
control Wait
Order

WIP
Plant Print Extrude

Product
Warehouse Wait

Product
Transport Move

1 day 2 days 1 day 1 day 1 day

6 days
Figure 7.4(b)
© 2014 Pearson Education, Inc. 7 - 34
 Process Analysis and Design
► Value-Stream Mapping
► Where value is added in the entire
production process, including the supply
chain
► Extends from the customer back to the
suppliers

© 2014 Pearson Education, Inc. 7 - 35

 Value-Stream Mapping
1. Begin with symbols for customer, supplier,
and production to ensure the big picture
2. Enter customer order requirements
3. Calculate the daily production requirements
4. Enter the outbound shipping requirements
and delivery frequency
5. Determine inbound shipping method and
delivery frequency

© 2014 Pearson Education, Inc. 7 - 36

 Value-Stream Mapping
6. Add the process steps (i.e., machine,
assemble) in sequence, left to right
7. Add communication methods, add their
frequency, and show the direction with
arrows
8. Add inventory quantities (shown with I )
between every step of the entire flow
9. Determine total working time (value-added
time) and delay (non-value-added time)

© 2014 Pearson Education, Inc. 7 - 37

 Value-Stream Mapping

Figure 7.5

© 2014 Pearson Education, Inc. 7 - 38

 Process Chart

© 2014 Pearson Education, Inc. 7 - Figure

39 7.6
 Service Blueprinting

► Focuses on the customer and provider

interaction
► Defines three levels of interaction
► Each level has different management
issues
► Identifies potential failure points

© 2014 Pearson Education, Inc. 7 - 40

 Service Blueprint
Personal Greeting Service Diagnosis Perform Service Friendly Close

Level Customer arrives

for service. Customer departs
#1
(3 min)

F
Determine Notify Customer pays bill.
specifics. customer (4 min)
Warm greeting (5 min)
and obtain No and recommend
an alternative
F
service request.
(10 sec) provider.
Standard Can F
Level request. (7 min)
service be
#2 (3 min) done and does Notify
Direct customer customer No customer the
to waiting room. approve? car is ready.
(5 min) (3 min)

F F F F
Yes Yes
Perform
Level required work. F Prepare invoice.
#3 (varies) (3 min)

Figure 7.7
© 2014 Pearson Education, Inc. 7 - 41
 Special Considerations for
Service Process Design
► Some interaction with customer is
necessary, but this often affects
performance adversely
► The better these interactions are
accommodated in the process design, the
more efficient and effective the process
► Find the right combination of cost and
customer interaction

© 2014 Pearson Education, Inc. 7 - 42

 Service Process Matrix
Degree of Customization
Figure 7.8
Low High
Mass Service Professional Service
Private Traditional
banking orthodontics
Commercial
banking
High General-
Full-service purpose law firms
stockbroker
Degree of Labor

Digital
Boutiques orthodontics
Retailing

Service Factory Law clinics Service Shop

Limited-service Specialized
stockbroker hospitals
Warehouse and Fast-food Fine-dining
catalog stores restaurants Hospitals
Low restaurants
Airlines

No-frills
airlines

© 2014 Pearson Education, Inc. 7 - 43

 Service Process Matrix

Mass Service and Professional Service

► Labor involvement is high
► Focus on human resources
► Selection and training highly
important Low
Degree of Customization
High

Mass Service

Personalized services
Professional Service

►
Private Traditional
banking orthodontics
Commercial
banking
High General-
Full-service purpose law
stockbroker firms
Digital

Degree of Labor
Boutiques orthodontics
Retailing
Law clinics
Service Factory Service Shop
Limited-service Specialized
stockbroker hospitals
Warehouse and Fast-food
catalog stores Fine-dining
Low restaurants restaurants Hospitals

Airlines

No-frills
airlines

© 2014 Pearson Education, Inc. 7 - 44

 Service Process Matrix

Service Factory and Service Shop

► Automation of standardized services
► Restricted offerings
► Low labor intensity responds well to
process technology and Degree of Customization

scheduling
Low High

Mass Service Professional Service

Private Traditional
banking orthodontics
Commercial
banking
High General-

Tight control required to

Full-service purpose law

► stockbroker firms
Digital

Degree of Labor
Boutiques orthodontics
Retailing

maintain standards
Law clinics
Service Factory Service Shop
Limited-service Specialized
stockbroker hospitals
Warehouse and Fast-food
catalog stores Fine-dining
Low restaurants restaurants Hospitals

Airlines

No-frills
airlines

© 2014 Pearson Education, Inc. 7 - 45

 Improving Service
Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Separation Structuring service so Bank customers go to a
customers must go where manager to open a new
the service is offered account, to loan officers for
loans, and to tellers for
deposits
Self-service Self-service so customers Supermarkets and
examine, compare, and department stores
evaluate at their own pace
Postponement Customizing at delivery Customizing vans at delivery
rather than at production
Focus Restricting the offerings Limited-menu restaurant

© 2014 Pearson Education, Inc. 7 - 46

 Improving Service
Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Modules Modular selection of Investment and insurance
service selection
Modular production Prepackaged food modules
in restaurants
Automation Separating services that Automatic teller machines
may lend themselves to
some type of automation
Scheduling Precise personnel Scheduling ticket counter
scheduling personnel at 15-minute
intervals at airlines
Training Clarifying the service Investment counselor,
options funeral directors
Explaining how to avoid After-sale maintenance
problems personnel
© 2014 Pearson Education, Inc. 7 - 47
 Production Technology
1. Machine technology
2. Automatic identification systems (AISs) and RFID
3. Process control
4. Vision systems
5. Robots
6. Automated storage and retrieval systems (ASRSs)
7. Automated guided vehicles (AGVs)
8. Flexible manufacturing systems (FMSs)
9. Computer-integrated manufacturing (CIM)

© 2014 Pearson Education, Inc. 7 - 48

 Machine Technology
► Increased precision Comp
uter n
contro umerical
► Increased productivity l (CNC
)
► Increased flexibility
► Improved environmental impact
► Reduced changeover time
► Decreased size
► Reduced power requirements
© 2014 Pearson Education, Inc. 7 - 49
 Automatic Identification
Systems (AISs)
► Improved data acquisition
► Reduced data entry errors
► Increased speed
► Increased scope
of process
automation

Bar codes and RFID

© 2014 Pearson Education, Inc. 7 - 50
 Process Control
► Real-time monitoring and control of
processes
► Sensors collect data
► Devices read data
on periodic basis
► Measurements translated into digital
signals then sent to a computer
► Computer programs analyze the data
► Resulting output may take numerous
forms
© 2014 Pearson Education, Inc. 7 - 51
 Vision Systems
► Particular aid to inspection
► Consistently
accurate
► Never bored
► Modest cost
► Superior to
individuals performing the same tasks

© 2014 Pearson Education, Inc. 7 - 52

 Robots
► Perform monotonous or dangerous
tasks
► Perform tasks
requiring significant
strength or
endurance
► Generally enhanced
consistency and
accuracy
© 2014 Pearson Education, Inc. 7 - 53
 Automated Storage and
Retrieval Systems (ASRSs)
► Automated placement and withdrawal
of parts and products
► Reduced errors and labor
► Particularly useful in inventory and test
areas of manufacturing firms

© 2014 Pearson Education, Inc. 7 - 54

 Automated Guided Vehicle
(AGVs)
► Electronically guided
and controlled carts
► Used for movement
of products and/or
individuals

© 2014 Pearson Education, Inc. 7 - 55

 Flexible Manufacturing
Systems (FMSs)
► Computer controls both the workstation and
the material handling equipment
► Enhance flexibility and reduced waste
► Can economically produce low volume at high
quality
► Reduced changeover time and increased
utilization
► Stringent communication requirement between
components
© 2014 Pearson Education, Inc. 7 - 56
 Computer-Integrated
Manufacturing (CIM)
► Extend flexible manufacturing
► Backwards to engineering and inventory
control
► Forward into warehousing and shipping
► Can also include financial and customer
service areas
► Reducing the distinction between low-
volume/high-variety, and high-
volume/low-variety production
© 2014 Pearson Education, Inc. 7 - 57
 Computer-
Integrated
Manufacturing
(CIM)

ASRS and AGVs

Figure 7.9
© 2014 Pearson Education, Inc. 7 - 58
 Technology in Services
TABLE 7.4 Examples of Technology’s Impact on Services
SERVICE INDUSTRY EXAMPLE
Financial Services Debit cards, electronic funds transfer, ATMs,
Internet stock trading, on-line banking via cell
phone
Education Electronic bulletin boards, on-line journals,
WebCT, Blackboard, and smart phones
Utilities and government Automated one-man garbage trucks, optical
mail and bomb scanners, flood warning
systems, meters allowing homeowners to
control energy usage and costs
Restaurants and foods Wireless orders from waiters to kitchen, robot
butchering, transponders on cars that track
sales at drive-throughs
Communications Interactive TV, e-books via Kindle

© 2014 Pearson Education, Inc. 7 - 59

 Technology in Services
TABLE 7.4 Examples of Technology’s Impact on Services
SERVICE INDUSTRY EXAMPLE
Hotels Electronic check-in/check-out, electronic
key/lock systems, mobile Web bookings
Wholesale/retail trade Point-of-sale (POS) terminals, e-commerce,
electronic communication between store and
supplier, bar-coded data, RFID
Transportation Automatic toll booths, satellite-directed
navigation systems, Wi-Fi in automobiles
Health care Online patient-monitoring systems, online
medical information systems, robotic surgery
Airlines Ticketless travel, scheduling, Internet
purchases, boarding passes downloaded as
two-dimensional bar codes on smart phones

© 2014 Pearson Education, Inc. 7 - 60

 Process Redesign
► The fundamental rethinking of business
processes to bring about dramatic
improvements in performance
► Relies on reevaluating the purpose of the
process and questioning both the purpose
and the underlying assumptions
► Requires reexamination of the basic process
and its objectives
► Focuses on activities that cross functional
lines
► Any process is a candidate for redesign
© 2014 Pearson Education, Inc. 7 - 61
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transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

© 2014 Pearson Education, Inc. 7 - 62